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QFREB; A word from the economist

Price Changes in Canada’s Real Estate Market:

Beware of Hasty Conclusions

The Canadian real estate market has been registering strong property price increases for a few months now. In this document, we will examine where these increases are coming from by looking at property price changes in Canada and focusing on Canada’s three largest metropolitan areas: Toronto, Montreal and Vancouver. In fact the Toronto and Vancouver markets, alone, largely account for the recent price increases registered across the country. It also appears that these price increases have been mainly felt in the detached home market, while apartments have been registering more moderate price increases. Finally, the use of a relevant and representative indicator for the monitoring of price changes on the real estate market is essential in order to achieve an accurate and reliable analysis.

Significant Price Increases in Canada’s Real Estate Market

In July 2012, federal Finance Minister, Mr. Jim Flaherty, tightened mortgage rules for the fourth time since 2008 in order to slow the Canadian real estate market 1.

More recently, the Minister again expressed concern about significant price increases in Canada’s housing market. Although concrete steps have not yet been taken, he has threatened to take action once again to try to slow price growth across the country. Indeed, the latest data published by the Canadian Real Estate Association (CREA) reports an 8.5 per cent increase in the average home price in Canada in October 2013. This represents the seventh consecutive increase(and the fifth consecutive increase greater than 8 per cent), and follows a rise of 8.8 per cent in September, the largest increase since July 2011.

+For more information on this topic, read the September 2013 Word From the Economist, entitled “The Fourth Round of Mortgage Tightening, One Year Later”.

The strong price increases registered across Canada in recent months appear to reflect significant increases in select markets: the price increases registered in Toronto and Vancouver since the spring of 2013 have largely contributed to pulling price changes upward across the country. According to CREA data, these two areas regularly register significant price increases. For example, Toronto posted a 7.1 per cent increase in average home price in October 2013, while Vancouver registered a 5.3 per cent increase.

The Montreal Metropolitan Area posted a more moderate increase in average price 2 in October 2013, at 2.5 per cent, as compared to the same month one year earlier. This scenario has been the case since last March.

However, if we exclude Vancouver from the calculation of Canada’s average home price, we would obtain an increase of 7 per cent in October 2013 compared to October 2012, which is smaller than the 8.5 per cent increase that was observed across Canada, including Vancouver.

When Toronto is also excluded from the calculation, the increase drops to only 5.3 per cent, which is 1.6 times smaller. Thus, by themselves, the Vancouver and Toronto markets accounted for 40 per cent of the price increase that was observed in Canada’s housing market in October 2013, while in terms of sales, these two markets accounted for just over one quarter of Canada’s total residential transactions since the start of the year.

+For the Montreal Metropolitan Area, this is actually a weighted average price. For more information about the

+differences between the average home price and the weighted average price, see the document “A Weighted Average Price to Better Measure Price Variation”.

Source: CREA

Vancouver Toronto Montréal (PMP) Canada

More Sustained Price Increases and a More Volatile Market in Vancouver and Toronto

The Vancouver and Toronto markets have registered larger price increases than Canada as a whole since 2008, a year that was marked by the outbreak of the financial crisis and the beginning of a series of mortgage tightening measures in Canada. Thus, between October 2008 and October 2013, the average home price (seasonally adjusted) rose 40 per cent in Vancouver and 54 per cent in Toronto. In comparison, the average home price increased by 36 per cent for Canada as a whole and by 30 per cent in Montréal over the same period

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